Thursday, May 29, 2014

Health Care Price Transparency is the First Step

Healthcare markets have the worst price transparency of any market. Doctors don't post 'list' prices. Insurance firms - which should really be called healthcare payment firms because little of what they do resembles the traditional insurance function of spreading large risks - negotiate prices and networks for their clients; therefore, each Doctor has a different price for each insurance firm's patients. Doctors don't know what their services cost each patient. Doctors are trained to believe that their specialized knowledge gained by years of training is required to make informed decisions on treatment and treat patients, their customers, as uninformed illiterates. Patients have little information about what are 'market,' read best choice, procedures and prices. Patients don't care about costs as they don't see or pay the bills and feel like they are 'playing with someone else's money.' Doctors are not getting paid by patients and have no incentive to provide information on best choice treatment in a way that can be absorbed by laymen.

This is not a recipe for a market which provides good service, continuously getting better for consumers at good value. How on earth could it?

In markets we like, those where we feel we get treated well and value for our money, we gain a tremendous amount of information from prices. Prices not only tell us what things cost and whether Doctor Ann or Doctor Terry is providing services at an appropriate price, but what is priced gives us a feel for what a normal bundle of stuff is in this particular area or endeavor. Both of these things are highly educational for the buyer. We get educated by those trying to sell us stuff because they are trying to convince us to willingly give up our money for their goods and we are more likely to do so if we understand their goods.

Look at those areas that are structured in this way in healthcare and you will see working markets. Lasik eye surgery is a good example as are cosmetic surgery procedures.

Until this fundamental coordinating device is back in the healthcare market no other reform will have any significant positive impact.

Accurate Reality: Pricing is the single best tool to make markets work. Markets without prices function poorly. Poorly functioning markets often lead to high costs and poor service. Healthcare will continue to disappoint in performance until price transparency is introduced. Price transparency is the only real healthcare reform that matters. Until it is done, all else is a waste of breath and should proceed after the impact of price transparency is understood.